advanced safe harbor 401(k) plan designs (for the financial advisor)
TRANSCRIPT
Copyright (C) 2012, 2013, 2014, 2015 Richard A. PerryCopyright (C) 2012, 2013, 2014, 2015 Richard A. Perry
Advanced Safe Advanced Safe Harbor 401(k) Plan Harbor 401(k) Plan
DesignDesign((for the Financial Advisorfor the Financial Advisor))
Richard A. Perry, ChFC, QPA, QPFC, AIFARichard A. Perry, ChFC, QPA, QPFC, AIFA®®
Retirement Resource Group, LLCRetirement Resource Group, LLC250 Hampton Street250 Hampton StreetAuburn, MA 01501Auburn, MA 01501
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
DisclaimerDisclaimer This presentation may cause: dizziness; drowsiness (including This presentation may cause: dizziness; drowsiness (including
daytime drowsiness); "drugged" feeling; dry mouth; headache; daytime drowsiness); "drugged" feeling; dry mouth; headache; nausea; nose or throat irritation; sluggishness, stomach upset, nausea; nose or throat irritation; sluggishness, stomach upset, or weakness. Seek medical attention right away if any of these or weakness. Seek medical attention right away if any of these
SEVERE side effects occur: severe allergic reactions (rash; SEVERE side effects occur: severe allergic reactions (rash; hives; itching; difficulty breathing; tightness in the chest; hives; itching; difficulty breathing; tightness in the chest;
swelling of the hands, legs, mouth, face, lips, eyes, throat, or swelling of the hands, legs, mouth, face, lips, eyes, throat, or tongue; throat closing; unusual hoarseness); abnormal tongue; throat closing; unusual hoarseness); abnormal
thinking; behavior changes; chest pain; confusion; decreased thinking; behavior changes; chest pain; confusion; decreased coordination; difficulty swallowing or breathing; fainting; fast coordination; difficulty swallowing or breathing; fainting; fast or irregular heartbeat; hallucinations; memory problems (eg, or irregular heartbeat; hallucinations; memory problems (eg,
memory loss); mental or mood changes (eg, aggression, memory loss); mental or mood changes (eg, aggression, agitation, anxiety); new or worsening depression; severe agitation, anxiety); new or worsening depression; severe
dizziness; shortness of breath; suicidal thoughts or actions; dizziness; shortness of breath; suicidal thoughts or actions; vision changes; vision changes; or desire to become a TPAor desire to become a TPA..
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
ObjectivesObjectives
Understand plan design to better advise:Understand plan design to better advise: ProspectsProspects ClientsClients
Types of designs:Types of designs: Permitted Disparity (Social Security Integration) Permitted Disparity (Social Security Integration) Age-WeightedAge-Weighted Cross TestedCross Tested Triple Stacked MatchTriple Stacked Match
Not to become a TPANot to become a TPA
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Safe Harbor 401(k) PlansSafe Harbor 401(k) Plans
Small Business Job Protection Act of Small Business Job Protection Act of 1996 (“SBJPA”)1996 (“SBJPA”)
Effective post-1998 plan yearsEffective post-1998 plan years That is, plan years beginning on or after That is, plan years beginning on or after
January 1, 1999January 1, 1999 Small Plans Small Plans Large PlansLarge Plans
McDonald’sMcDonald’s
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
401(K) Plan Issues401(K) Plan Issues
Average Deferral Percentage Test (ADP)Average Deferral Percentage Test (ADP) IRC §401(k)IRC §401(k)
Average Contribution Percentage Test Average Contribution Percentage Test (ACP)(ACP)
IRC §401(m)IRC §401(m) Top HeavyTop Heavy
IRC §416(g)(1)IRC §416(g)(1) EGTRRA (Top Heavy Exemption)EGTRRA (Top Heavy Exemption)
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
401(k) Plan Limits – 401(k) Plan Limits – IRC §402(g)(1)IRC §402(g)(1)
$18,000 (2015)$18,000 (2015) Indexed for Cost of Living increasesIndexed for Cost of Living increases $6,000 Catch-Up provisions (2015)$6,000 Catch-Up provisions (2015)
Age 50 or older at any time during the yearAge 50 or older at any time during the year
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
ADP & ACP TestADP & ACP Test
Highly Compensated Employees (HCEs)Highly Compensated Employees (HCEs) Owns Owns more thanmore than 5%5% of the voting shares of of the voting shares of
the company stock (includes family the company stock (includes family attribution)attribution)
Earnings in excess of $120,000 (2015)Earnings in excess of $120,000 (2015) Earnings indexed for Cost of Living increasesEarnings indexed for Cost of Living increases
May be limited to top 20% of employees (by May be limited to top 20% of employees (by compensation)compensation)
Look back yearLook back year
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
ADP & ACP TestADP & ACP Test
Non Highly Compensated Employees Non Highly Compensated Employees (NHCEs)(NHCEs) All other employeesAll other employees
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
ADP & ACP TestADP & ACP Test
Basic TestBasic Test Average deferral for HCEs no more than Average deferral for HCEs no more than
1.25% of average deferral for NHCEs1.25% of average deferral for NHCEs Alternate TestAlternate Test
Average deferral for HCEs no more than Average deferral for HCEs no more than twice that of NHCEs (limited to 2% spread)twice that of NHCEs (limited to 2% spread)
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
ADP & ACP TestADP & ACP TestNHCE AverageNHCE Average HCE MaximumHCE Maximum
1%1% 2%2%2%2% 4%4%3%3% 5%5%4%4% 6%6%5%5% 7%7%6%6% 8%8%7%7% 9%9%8%8% 10%10%9%9% 11.25%11.25%10%10% 12.50%12.50%
Tests Identical
Alternate Test
Basic Test
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Top Heavy PlansTop Heavy Plans More than 60% of the benefits accrue to Key More than 60% of the benefits accrue to Key
EmployeesEmployees Owns Owns 5% or more5% or more of the stock of the business (including of the stock of the business (including
family attribution rules)family attribution rules) 1% owner earning in excess of $150,000 (not indexed)1% owner earning in excess of $150,000 (not indexed) Officer and earns in excess of $170,000 (indexed) (2015)Officer and earns in excess of $170,000 (indexed) (2015)
Minimum required contribution for non-Key Minimum required contribution for non-Key Employees:Employees: 3% of compensation, or 3% of compensation, or If less, the amount given to the Key Employee If less, the amount given to the Key Employee
with the highest allocation rate.with the highest allocation rate.
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Top Heavy ExemptionTop Heavy Exemption
Contributions consist solely of:Contributions consist solely of: Elective DeferralsElective Deferrals ADP Safe Harbor ContributionsADP Safe Harbor Contributions Matches that satisfy ACP safe harbor rulesMatches that satisfy ACP safe harbor rules
Cannot consider deferrals in excess of 6% of safe harbor Cannot consider deferrals in excess of 6% of safe harbor compensation.compensation.
Rate of match cannot increase as deferrals increase.Rate of match cannot increase as deferrals increase. No HCE can have a rate of match in excess of the rate of No HCE can have a rate of match in excess of the rate of
match of match of anyany NHCE. NHCE. Discretionary match amount cannot exceed 4% of Safe Discretionary match amount cannot exceed 4% of Safe
Harbor Compensation.Harbor Compensation.
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Safe Harbor 401(k) PlanSafe Harbor 401(k) Plan
AdvantagesAdvantages No ADP or ACP TestingNo ADP or ACP Testing HCE deferral certaintyHCE deferral certainty No corrective No corrective
distributions or reportingdistributions or reporting Can be used to satisfy Can be used to satisfy
Top Heavy requirementsTop Heavy requirements
DisadvantagesDisadvantages Obligates employer to a Obligates employer to a
contributioncontribution
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Top Heavy ExemptionTop Heavy Exemption
Top Heavy Exemption does not apply Top Heavy Exemption does not apply if:if: Forfeitures are allocated to accountsForfeitures are allocated to accounts Nonelective discretionary contributions Nonelective discretionary contributions
are allocatedare allocated Longer eligibility is required for the Safe Longer eligibility is required for the Safe
Harbor contribution that elective deferralsHarbor contribution that elective deferrals
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Safe Harbor 401(k) PlanSafe Harbor 401(k) Plan
Non-elective contributionNon-elective contribution QNECQNEC Flexible Safe Harbor PlanFlexible Safe Harbor Plan
Plan document states plan may be amended Plan document states plan may be amended during the year (at least 30 days prior to plan during the year (at least 30 days prior to plan year end) to become safe harboryear end) to become safe harbor
Supplemental notice requiredSupplemental notice required
Eligible matching contributionEligible matching contribution
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Safe Harbor 401(k) PlanSafe Harbor 401(k) Plan
Non-elective contribution equal to 3% Non-elective contribution equal to 3% of compensationof compensation All employees eligible by age and serviceAll employees eligible by age and service Employee need not make elective deferral Employee need not make elective deferral
contributioncontribution
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Safe Harbor 401(k) PlanSafe Harbor 401(k) Plan
Matching contribution equal to at least:Matching contribution equal to at least: Basic Safe Harbor MatchBasic Safe Harbor Match
100% of the first 3% of an employee’s elective 100% of the first 3% of an employee’s elective deferrals, plusdeferrals, plus
50% of the next 2% of an employee’s elective 50% of the next 2% of an employee’s elective deferralsdeferrals
Enhanced Safe Harbor MatchEnhanced Safe Harbor Match 100% of the first 4% of an employee’s elective 100% of the first 4% of an employee’s elective
deferralsdeferrals
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Safe Harbor 401(k) PlanSafe Harbor 401(k) Plan
Employer Contribution:Employer Contribution: To ALL NHCEs eligible to deferTo ALL NHCEs eligible to defer
No allocation conditionsNo allocation conditions Can also allocate to HCEsCan also allocate to HCEs
Fully VestedFully Vested Subject to 401(k) withdrawal restrictionsSubject to 401(k) withdrawal restrictions
Age 59½ Age 59½ Not available for hardship distributionsNot available for hardship distributions
Safe Harbor 401(k) PlanSafe Harbor 401(k) PlanEmployee Elective Employee Elective
DeferralDeferral““Basic” Safe Basic” Safe Harbor MatchHarbor Match
““Enhanced” Safe Enhanced” Safe Harbor MatchHarbor Match
1%1% 1%1% 1%1%2%2% 2%2% 2%2%3%3% 3%3% 3%3%4%4% 3.5%3.5% 4%4%5%5% 4%4% 4%4%6%6% 4%4% 4%4%7%7% 4%4% 4%4%8%8% 4%4% 4%4%
9%9% 4%4% 4%4%10%10% 4%4% 4%4%
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Match vs. Non-ElectiveMatch vs. Non-Elective
MatchMatch No employer contribution No employer contribution
if employee does not if employee does not deferdefer
Possible lower employer Possible lower employer costscosts
Higher employer cost if Higher employer cost if most employees defer at most employees defer at maximummaximum
HCE contribution HCE contribution flexibilityflexibility
““Stacking” match may Stacking” match may allow greater HCE allow greater HCE deferrals at lower costsdeferrals at lower costs
Non-ElectiveNon-Elective Possible higher costs – Possible higher costs –
all employees get at least all employees get at least 3%3%
Costs more predictableCosts more predictable May use rate group May use rate group
testingtesting Minimum gateway in Minimum gateway in
cross tested planscross tested plans
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Safe Harbor Plan DesignsSafe Harbor Plan Designs
Increase contributions for owners and Increase contributions for owners and key employees:key employees: Permitted Disparity (Social Security Permitted Disparity (Social Security
integration)integration) Age-Weighted PlansAge-Weighted Plans Cross Tested PlansCross Tested Plans Triple Stacked MatchTriple Stacked Match
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Annual Additions Limit –Annual Additions Limit –IRC §415(c)(1)(A)IRC §415(c)(1)(A)
2015 Limits2015 Limits Lesser of:Lesser of:
$53,000 ($59,000 if age 50 or older*)$53,000 ($59,000 if age 50 or older*) 100% of compensation100% of compensation
* Using $6,000 “catch-up” amount* Using $6,000 “catch-up” amount
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Safe Harbor 401(k) Deferral & Safe Harbor 401(k) Deferral & Match (Only)Match (Only)
NameNameGross Gross
CompensationCompensation DeferralsDeferralsSafe Harbor Safe Harbor
MatchMatchTotal Total
AllocationAllocation
Owner 1Owner 1 $265,000$265,000 $24,000$24,000 $10,600$10,600 $34,600*$34,600*Owner 2Owner 2 $265,000$265,000 $18,000$18,000 $10,600$10,600 $28,600*$28,600*Employee AEmployee A $50,000$50,000 $2,500$2,500 $2,000$2,000 $4,500$4,500Employee BEmployee B $45,000$45,000 $2,000$2,000 $1,675$1,675 $3,675$3,675Employee CEmployee C $40,000$40,000 $1,500$1,500 $1,350$1,350 $2,850$2,850Employee DEmployee D $35,000$35,000 $0$0 $0$0 $0$0TotalsTotals $700,000$700,000 $48,000$48,000 $26,225$26,225 $74,225$74,225
*Each HCE $24,400 less than allowed under IRC §415(c)*Each HCE $24,400 less than allowed under IRC §415(c)
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Safe Harbor 401(k) with Safe Harbor 401(k) with Integrated Profit SharingIntegrated Profit Sharing
NameNameGross Gross Comp.Comp. DeferralsDeferrals
Safe Harbor Safe Harbor MatchMatch
IntegratedIntegratedProfit Profit
SharingSharingTotal Total
AllocationAllocation
Owner 1Owner 1 $265,000$265,000 $24,000$24,000 $10,600$10,600 $24,400$24,400 $59,000$59,000
Owner 2Owner 2 $265,000$265,000 $18,000$18,000 $10,600$10,600 $24,400$24,400 $53,000$53,000
Employee AEmployee A $50,000$50,000 $2,500$2,500 $2,000$2,000 $2,860$2,860 $7,360$7,360
Employee BEmployee B $45,000$45,000 $2,000$2,000 $1,675$1,675 $2,574$2,574 $6,249$6,249
Employee CEmployee C $40,000$40,000 $1,500$1,500 $1,350$1,350 $2,288$2,288 $5,138$5,138
Employee DEmployee D $35,000$35,000 $0$0 $0$0 $2,002$2,002 $2,002$2,002
TotalsTotals $700,000$700,000 $48,000$48,000 $26,225$26,225 $58,524$58,524 $132,749$132,749
Total employee cost of $14,749Total employee cost of $14,749
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Safe Harbor 401(k) with Safe Harbor 401(k) with Integrated Profit SharingIntegrated Profit Sharing
Using safe harbor matchUsing safe harbor match Could use non-elective (QNEC) to satisfy Could use non-elective (QNEC) to satisfy
safe harborsafe harbor Need to allocate QNEC before integrated profit Need to allocate QNEC before integrated profit
sharing sharing
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Cross Tested Profit Sharing Cross Tested Profit Sharing FormulasFormulas
Cross Tested Plan Formulas:Cross Tested Plan Formulas: Age-WeightedAge-Weighted Cross-TestedCross-Tested
Classification FormulasClassification Formulas New ComparabilityNew Comparability ““Super” IntegratedSuper” Integrated
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Cross Tested Profit Sharing Cross Tested Profit Sharing FormulasFormulas
Allowed under IRC §401(a)(4)Allowed under IRC §401(a)(4) Precursor was Revenue Ruling 81-202Precursor was Revenue Ruling 81-202
In many instances replace integrated In many instances replace integrated formulasformulas
Since EGTRRA they are allowed in Since EGTRRA they are allowed in prototype plan documentsprototype plan documents
Typical designs are:Typical designs are: Age weighted formulasAge weighted formulas Classification formulasClassification formulas
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Cross Tested Profit Sharing PlansCross Tested Profit Sharing Plans
IRC §401(a)(4)IRC §401(a)(4) An employee benefit plan shall not An employee benefit plan shall not
discriminate on the basis of benefits, discriminate on the basis of benefits, rights or features.rights or features.
Treasury Regulation 1-401(a)(4)-1Treasury Regulation 1-401(a)(4)-1 300+ pages300+ pages
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Cross Tested Profit Sharing PlansCross Tested Profit Sharing Plans
IRC §401(a)(4)IRC §401(a)(4) ““A trust created or organized in the United States and A trust created or organized in the United States and
forming part of a stock bonus, pension, or profit sharing forming part of a stock bonus, pension, or profit sharing plan of an employer for the exclusive benefits of its plan of an employer for the exclusive benefits of its employees or their beneficiaries shall constitute a qualified employees or their beneficiaries shall constitute a qualified trust under this section if the contributions or benefits trust under this section if the contributions or benefits provided under the plan do not discriminate in favor of provided under the plan do not discriminate in favor of highly compensated employees (within the meaning of highly compensated employees (within the meaning of §414(q)). For purposes of this paragraph, there shall be §414(q)). For purposes of this paragraph, there shall be excluded from consideration employees described in excluded from consideration employees described in §410(b)(3)(A) and (C).”§410(b)(3)(A) and (C).”
Treasury Regulation 1-401(a)(4)-1Treasury Regulation 1-401(a)(4)-1 300+ pages300+ pages
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Cross Tested Profit Sharing Cross Tested Profit Sharing FormulasFormulas
GatewaysGateways Broadly Available Allocation RatesBroadly Available Allocation Rates Gradual Age/Service SchedulesGradual Age/Service Schedules
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Cross Tested Profit Sharing Cross Tested Profit Sharing FormulasFormulas
GatewaysGateways Treasury Regulation 1.401(a)(4)-2(c)(2)Treasury Regulation 1.401(a)(4)-2(c)(2) Allocation rate for Allocation rate for eacheach benefitingbenefiting NHCE must be NHCE must be
greater than or equal to the lessor of:greater than or equal to the lessor of: 1/3 the highest allocation rate of any HCE benefiting 1/3 the highest allocation rate of any HCE benefiting
under the planunder the plan 5% of IRC §415(c)(3) pay5% of IRC §415(c)(3) pay
Can use any IRC §414(s) definition of compensationCan use any IRC §414(s) definition of compensation Most commonly use W-2 wagesMost commonly use W-2 wages
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Cross Tested Profit Sharing Cross Tested Profit Sharing FormulasFormulas
Broadly Available Allocation RatesBroadly Available Allocation Rates Each allocation rate must meet the Ratio Each allocation rate must meet the Ratio
Percentage Test or both parts of the Percentage Test or both parts of the nondiscriminatory classification testnondiscriminatory classification test
Assuming plan’s testing group meets Average Assuming plan’s testing group meets Average Benefits Percentage Test (ABPT) this design Benefits Percentage Test (ABPT) this design would pass the general test on a would pass the general test on a contributioncontribution basisbasis
Therefore, no need to cross-testTherefore, no need to cross-test Very limited applicabilityVery limited applicability
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Cross Tested Profit Sharing Cross Tested Profit Sharing FormulasFormulas
Gradual Age/Service SchedulesGradual Age/Service Schedules Each band not greater than the prior band by more than 5% Each band not greater than the prior band by more than 5%
nor twice that prior bandnor twice that prior band Ratio of band to preceding band cannot exceed ratio of the Ratio of band to preceding band cannot exceed ratio of the
two immediately preceding bandstwo immediately preceding bands Minimum allocations (for example Top Heavy) generally Minimum allocations (for example Top Heavy) generally
permitted as long as contribution to lowest band is at least 1%permitted as long as contribution to lowest band is at least 1% Each band (other than the highest) must be the same lengthEach band (other than the highest) must be the same length If lowest band starts at age 25 it can be deemed to start at any If lowest band starts at age 25 it can be deemed to start at any
prior age and still satisfy the same length requirementprior age and still satisfy the same length requirement
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Cross Tested Profit Sharing Cross Tested Profit Sharing Formulas Formulas
Gradual Age/Service ScheduleGradual Age/Service Schedule
AgeAge ContributionContribution % Difference% Difference RatioRatio
< 28< 28 1.25%1.25% N/AN/A N/AN/A
28 – 3528 – 35 2.50%2.50% 1.25%1.25% 200%200%
36 – 4336 – 43 5.00%5.00% 2.50%2.50% 200%200%
44 – 5144 – 51 10.00%10.00% 5.00%5.00% 200%200%
52 – 5952 – 59 15.00%15.00% 5.00%5.00% 150%150%
≥ ≥ 6060 20.00%20.00% 5.00%5.00% 133%133%
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Cross Tested Profit Sharing Cross Tested Profit Sharing FormulasFormulas
Gradual Age/Service SchedulesGradual Age/Service Schedules Works well for:Works well for:
Transient populationsTransient populations Small groupsSmall groups
Can reduce staff contributions to:Can reduce staff contributions to: Nearly 3% if Top HeavyNearly 3% if Top Heavy Below 3% if not Top HeavyBelow 3% if not Top Heavy
Schedule must be specified in plan Schedule must be specified in plan documentdocument
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Safe Harbor 401(k) with Age Safe Harbor 401(k) with Age Weighted Profit SharingWeighted Profit Sharing
NameName
Gross Comp.Gross Comp.
DeferralsDeferrals
Safe Harbor MatchSafe Harbor MatchAge WeightedAge WeightedProfit SharingProfit Sharing
Total employee cost of $15,642Total employee cost of $15,642
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Safe Harbor 401(k) with Age Safe Harbor 401(k) with Age Weighted Profit SharingWeighted Profit Sharing
NameNameGross Gross Comp.Comp. DeferralsDeferrals
Safe Harbor Safe Harbor MatchMatch
Age Age WeightedWeighted
Profit Profit SharingSharing
Total Total AllocationAllocation
Owner 1Owner 1 $265,000$265,000 $24,000$24,000 $10,600$10,600 $24,400$24,400 $59,000$59,000
Owner 2Owner 2 $265,000$265,000 $18,000$18,000 $10,600$10,600 $7,483$7,483 $36,083$36,083
Employee AEmployee A $50,000$50,000 $2,500$2,500 $2,000$2,000 $7,218$7,218 $11,718$11,718
Employee BEmployee B $45,000$45,000 $2,000$2,000 $1,675$1,675 $1,911$1,911 $5,586$5,586
Employee CEmployee C $40,000$40,000 $1,500$1,500 $1,350$1,350 $500$500 $3,350$3,350
Employee DEmployee D $35,000$35,000 $0$0 $0$0 $993$993 $988$988
TotalsTotals $700,000$700,000 $48,000$48,000 $26,225$26,225 $42,500$42,500 $116,725$116,725
Total employee cost of $15,642Total employee cost of $15,642
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Safe Harbor 401(k) with Cross Safe Harbor 401(k) with Cross Tested Profit SharingTested Profit Sharing
NameNameGross Gross Comp.Comp. DeferralsDeferrals
Safe Harbor Safe Harbor MatchMatch
Cross Cross TestedTestedProfit Profit
SharingSharing
Total Total AllocationAllocation
Owner 1Owner 1 $265,000$265,000 $24,000$24,000 $10,600$10,600 $24,400$24,400 $59,000$59,000
Owner 2Owner 2 $265,000$265,000 $18,000$18,000 $10,600$10,600 $24,400$24,400 $53,000$53,000
Employee AEmployee A $50,000$50,000 $2,500$2,500 $2,000$2,000 $2,000$2,000 $6,500$6,500
Employee BEmployee B $45,000$45,000 $2,000$2,000 $1,675$1,675 $1,800$1,800 $5,475$5,475
Employee CEmployee C $40,000$40,000 $1,500$1,500 $1,350$1,350 $1,600$1,600 $4,450$4,450
Employee DEmployee D $35,000$35,000 $0$0 $0$0 $1,400$1,400 $1,400$1,400
TotalsTotals $700,000$700,000 $48,000$48,000 $26,225$26,225 $55,600$55,600 $129,825$129,825
Total employee cost of $10,413Total employee cost of $10,413
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Safe Harbor 401(k) with Cross Safe Harbor 401(k) with Cross Tested Profit SharingTested Profit Sharing
NameNameGross Gross Comp.Comp. DeferralsDeferrals
Safe Harbor Safe Harbor MatchMatch
Cross Cross TestedTestedProfit Profit
SharingSharing
Total Total AllocationAllocation
Owner 1Owner 1 $265,000$265,000 $24,000$24,000 $10,600$10,600 $24,400$24,400 $59,000$59,000
Owner 2Owner 2 $265,000$265,000 $18,000$18,000 $10,600$10,600 $24,400$24,400 $53,000$53,000
Employee AEmployee A $50,000$50,000 $2,500$2,500 $2,000$2,000 $2,000$2,000 $6,500$6,500
Employee BEmployee B $45,000$45,000 $2,000$2,000 $1,675$1,675 $1,800$1,800 $5,475$5,475
Employee CEmployee C $40,000$40,000 $1,500$1,500 $1,350$1,350 $1,600$1,600 $4,450$4,450
Employee DEmployee D $35,000$35,000 $0$0 $0$0 $1,400$1,400 $1,400$1,400
TotalsTotals $700,000$700,000 $48,000$48,000 $26,225$26,225 $55,600$55,600 $129,825$129,825
Total employee cost of $10,413Total employee cost of $10,413
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Stacked Match Formulas - Stacked Match Formulas - ObjectivesObjectives
Provide HCEs with contributions totaling the Annual Provide HCEs with contributions totaling the Annual Additions Limit – IRC §415(c)(1)(A)Additions Limit – IRC §415(c)(1)(A)
Limit the plan contributions to elective deferrals and Limit the plan contributions to elective deferrals and matching contributions which satisfy ADP and ACP matching contributions which satisfy ADP and ACP safe harborssafe harbors
Qualify the plan for the Top Heavy exemptionQualify the plan for the Top Heavy exemption Impose a 6-year graded vesting schedule to the Impose a 6-year graded vesting schedule to the
greatest extent possiblegreatest extent possible Maximize employer contribution flexibility as much Maximize employer contribution flexibility as much
as possibleas possible Minimize employer contribution to NHCEs as much Minimize employer contribution to NHCEs as much
as possibleas possible
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Triple Stacked MatchTriple Stacked Match Four part contributionFour part contribution
Employee Elective DeferralsEmployee Elective Deferrals Safe Harbor MatchSafe Harbor Match
Basic Safe Harbor Match or Enhanced Safe Harbor MatchBasic Safe Harbor Match or Enhanced Safe Harbor Match Must be 100% vestedMust be 100% vested
Discretionary MatchDiscretionary Match Can be subject to vestingCan be subject to vesting Match up to 4% of first 6% of elective deferralsMatch up to 4% of first 6% of elective deferrals
Cannot match deferrals beyond 6%Cannot match deferrals beyond 6% Cannot have a discretionary match greater than 4%Cannot have a discretionary match greater than 4%
Fixed MatchFixed Match Can be subject to vestingCan be subject to vesting Based on first 6% of deferralsBased on first 6% of deferrals Specified in plan documentSpecified in plan document
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Matching Contribution Matching Contribution RequirementsRequirements
All matches must meet ADP/ACP Safe Harbor All matches must meet ADP/ACP Safe Harbor requirementsrequirements Discretionary match limited to 4% of payDiscretionary match limited to 4% of pay Cannot match deferrals in excess of 6%Cannot match deferrals in excess of 6% Match % cannot increase as deferrals increaseMatch % cannot increase as deferrals increase Match rate for any HCE cannot exceed rate for Match rate for any HCE cannot exceed rate for
NHCENHCE No last day of plan year or hours of service No last day of plan year or hours of service
requirementsrequirements
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Triple Stacked Match – Step ATriple Stacked Match – Step A
Basic match equals 100% of the first 3% the employee defers, plus 50% of the Basic match equals 100% of the first 3% the employee defers, plus 50% of the next 2% the employee defers.next 2% the employee defers.
NameNameGrossGrossComp.Comp. DeferralsDeferrals
BasicBasicMatchMatch
Owner 1Owner 1 $265,000$265,000 $24,000$24,000 $10,600$10,600Owner 2Owner 2 $265,000$265,000 $18,000$18,000 $10,600$10,600Employee AEmployee A $50,000$50,000 $2,500$2,500 $2,000$2,000Employee BEmployee B $45,000$45,000 $2,000$2,000 $1,675$1,675Employee CEmployee C $40,000$40,000 $1,500$1,500 $1,350$1,350Employee DEmployee D $35,000$35,000 $0$0 $0$0TotalsTotals $700,000$700,000 $48,000$48,000 $26,225$26,225
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Triple Stacked Match – Step BTriple Stacked Match – Step B
Add Discretionary Match equal to 2/3 of deferrals up to 6% of compensation.Add Discretionary Match equal to 2/3 of deferrals up to 6% of compensation. Discretionary Match cannot exceed 4% of compensationDiscretionary Match cannot exceed 4% of compensation Discretionary Match is flexibleDiscretionary Match is flexible Discretionary Match can be subject to a vesting scheduleDiscretionary Match can be subject to a vesting schedule
NameNameGrossGrossComp.Comp. DeferralsDeferrals
BasicBasicMatchMatch
Discretion. Discretion. MatchMatch
Owner 1Owner 1 $265,000$265,000 $24,000$24,000 $10,600$10,600 $10,600$10,600Owner 2Owner 2 $265,000$265,000 $18,000$18,000 $10,600$10,600 $10,600$10,600Employee AEmployee A $50,000$50,000 $2,500$2,500 $2,000$2,000 $1,667$1,667Employee BEmployee B $45,000$45,000 $2,000$2,000 $1,675$1,675 $1,333$1,333Employee CEmployee C $40,000$40,000 $1,500$1,500 $1,350$1,350 $1,000$1,000Employee DEmployee D $35,000$35,000 $0$0 $0$0 $0$0TotalsTotals $700,000$700,000 $48,000$48,000 $26,225$26,225 $25,200$25,200
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Triple Stacked Match – Step CTriple Stacked Match – Step C
Owners (HCEs) need an additional allocation of $13,800 each to reach Owners (HCEs) need an additional allocation of $13,800 each to reach maximum IRC §415(c)(1)(A) Annual Additions Limit.maximum IRC §415(c)(1)(A) Annual Additions Limit.
Use an additional Fixed Match.Use an additional Fixed Match.
NameNameGrossGrossComp.Comp. DeferralsDeferrals
BasicBasicMatchMatch
Discretion. Discretion. MatchMatch
FixedFixedMatchMatch
TotalTotalAllocationAllocation
Owner 1Owner 1 $265,000$265,000 $24,000$24,000 $10,600$10,600 $10,600$10,600 $13,800$13,800 $59,000$59,000Owner 2Owner 2 $265,000$265,000 $18,000$18,000 $10,600$10,600 $10,600$10,600 $13,800$13,800 $53,000$53,000Employee AEmployee A $50,000$50,000 $2,500$2,500 $2,000$2,000 $1,667$1,667Employee BEmployee B $45,000$45,000 $2,000$2,000 $1,675$1,675 $1,333$1,333Employee CEmployee C $40,000$40,000 $1,500$1,500 $1,350$1,350 $1,000$1,000Employee DEmployee D $35,000$35,000 $0$0 $0$0 $0$0TotalsTotals $700,000$700,000 $48,000$48,000 $26,225$26,225 $25,200$25,200
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Triple Stacked Match – Step CTriple Stacked Match – Step C
Cannot consider deferrals in excess of 6% of Safe Harbor Compensation.Cannot consider deferrals in excess of 6% of Safe Harbor Compensation. Fixed match equals 86.79% of deferrals up to 6% of compensation Fixed match equals 86.79% of deferrals up to 6% of compensation
($13,800/$15,900 = 86.79%).($13,800/$15,900 = 86.79%). Employee Cost = $14,233.Employee Cost = $14,233.
NameNameGrossGrossComp.Comp. DeferralsDeferrals
BasicBasicMatchMatch
Discretion. Discretion. MatchMatch
FixedFixedMatchMatch
TotalTotalAllocationAllocation
Owner 1Owner 1 $265,000$265,000 $24,000$24,000 $10,600$10,600 $10,600$10,600 $13,800$13,800 $59,000$59,000Owner 2Owner 2 $265,000$265,000 $18,000$18,000 $10,600$10,600 $10,600$10,600 $13,800$13,800 $53,000$53,000Employee AEmployee A $50,000$50,000 $2,500$2,500 $2,000$2,000 $1,667$1,667 $2,170$2,170 $8,337$8,337Employee BEmployee B $45,000$45,000 $2,000$2,000 $1,675$1,675 $1,333$1,333 $1,736$1,736 $6,744$6,744Employee CEmployee C $40,000$40,000 $1,500$1,500 $1,350$1,350 $1,000$1,000 $1,302$1,302 $5,152$5,152Employee DEmployee D $35,000$35,000 $0$0 $0$0 $0$0 $0$0 $0$0TotalsTotals $700,000$700,000 $48,000$48,000 $26,225$26,225 $25,200$25,200 $32,808$32,808 $132,233$132,233
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Triple Stacked Match – Worst Case Triple Stacked Match – Worst Case ScenarioScenario
Employee Cost = $17,606Employee Cost = $17,606
NameNameGrossGrossComp.Comp. DeferralsDeferrals
BasicBasicMatchMatch
Discretion. Discretion. MatchMatch
FixedFixedMatchMatch
TotalTotalAllocationAllocation
Owner 1Owner 1 $265,000$265,000 $24,000$24,000 $10,600$10,600 $10,600$10,600 $13,800$13,800 $59,000$59,000Owner 2Owner 2 $265,000$265,000 $18,000$18,000 $10,600$10,600 $10,600$10,600 $13,800$13,800 $53,000$53,000Employee AEmployee A $50,000$50,000 $2,500$2,500 $2,000$2,000 $1,667$1,667 $2,170$2,170 $8,337$8,337Employee BEmployee B $45,000$45,000 $2,000$2,000 $1,675$1,675 $1,333$1,333 $1,736$1,736 $6,744$6,744Employee CEmployee C $40,000$40,000 $1,500$1,500 $1,350$1,350 $1,000$1,000 $1,302$1,302 $5,125$5,125Employee DEmployee D $35,000$35,000 $1,400$1,400 $1,225$1,225 $933$933 $1,215$1,215 $4,773$4,773TotalsTotals $700,000$700,000 $48,000$48,000 $27,450$27,450 $26,133$26,133 $34,023$34,023 $137,006$137,006
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Triple Stacked Match – “True” Worst Triple Stacked Match – “True” Worst Case ScenarioCase Scenario
Each employee deferring minimum of 6% of compensationEach employee deferring minimum of 6% of compensation Employee Cost = $22,453Employee Cost = $22,453
NameNameGrossGrossComp.Comp. DeferralsDeferrals
BasicBasicMatchMatch
Discretion. Discretion. MatchMatch
FixedFixedMatchMatch
TotalTotalAllocationAllocation
Owner 1Owner 1 $265,000$265,000 $24,000$24,000 $10,600$10,600 $10,600$10,600 $13,800$13,800 $59,000$59,000Owner 2Owner 2 $265,000$265,000 $18,000$18,000 $10,600$10,600 $10,600$10,600 $13,800$13,800 $53,000$53,000Employee AEmployee A $50,000$50,000 $3,000$3,000 $2,000$2,000 $2,000$2,000 $2,604$2,604 $9,604$9,604Employee BEmployee B $45,000$45,000 $2,700$2,700 $1,800$1,800 $1,800$1,800 $2,343$2,343 $8,643$8,643Employee CEmployee C $40,000$40,000 $2,400$2,400 $1,600$1,600 $1,600$1,600 $2,083$2,083 $7,683$7,683Employee DEmployee D $35,000$35,000 $2,100$2,100 $1,400$1,400 $1,400$1,400 $1,823$1,823 $6,723$6,723TotalsTotals $700,000$700,000 $52,200$52,200 $28,000$28,000 $28,000$28,000 $36,453$36,453 $144,653$144,653
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Triple Stacked Match – Flexible Triple Stacked Match – Flexible FormulaFormula
Each employee deferring minimum of 6% of compensationEach employee deferring minimum of 6% of compensation Employee Cost = $22,453Employee Cost = $22,453
NameName GrossGrossComp.Comp.
DeferralsDeferrals BasicBasicMatchMatch
Discretion. Discretion. MatchMatch
90%90%FixedFixedMatchMatch
TotalTotalAllocationAllocation
Owner 1Owner 1 $265,000$265,000 $24,000$24,000 $10,600$10,600 $10,090$10,090 $14,310$14,310 $57,500$57,500Owner 2Owner 2 $265,000$265,000 $18,000$18,000 $10,600$10,600 $10,090$10,090 $14,310$14,310 $52,000$52,000Employee AEmployee A $50,000$50,000 $3,000$3,000 $2,000$2,000 $1,904$1,904 $2,700$2,700 $9,604$9,604Employee BEmployee B $45,000$45,000 $2,700$2,700 $1,800$1,800 $1,713$1,713 $2,430$2,430 $8,643$8,643Employee CEmployee C $40,000$40,000 $2,400$2,400 $1,600$1,600 $1,523$1,523 $2,160$2,160 $7,683$7,683Employee DEmployee D $35,000$35,000 $2,100$2,100 $1,400$1,400 $1,333$1,333 $1,890$1,890 $6,723$6,723TotalsTotals $700,000$700,000 $52,200$52,200 $28,000$28,000 $26,653$26,653 $37,800$37,800 $144,653$144,653
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Stacked Match Formulas - Stacked Match Formulas - ObjectivesObjectives
Design achieves all objectives:Design achieves all objectives: Not subject to ADP and ACP testingNot subject to ADP and ACP testing No non-elective contributions to test under IRC No non-elective contributions to test under IRC
§401(a)(4)§401(a)(4) Not Top Heavy because of the “safe harbor” Not Top Heavy because of the “safe harbor”
exemptionexemption Designed to comply with IRC §415(c)(1)(A)Designed to comply with IRC §415(c)(1)(A) Only testing needed is coverage under IRC Only testing needed is coverage under IRC
§410(b) – design is “bullet proof” from a testing §410(b) – design is “bullet proof” from a testing standpointstandpoint
A true “players only” designA true “players only” design If an employee defers nothing, the employee gets If an employee defers nothing, the employee gets
nothingnothing
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Stacked Match FormulasStacked Match Formulas
AdvantagesAdvantages HCE flexibilityHCE flexibility Increased disparityIncreased disparity PotentialPotential to reach to reach
IRC §415(c)(1)(A) IRC §415(c)(1)(A) limits with lower limits with lower costscosts
Not age sensitiveNot age sensitive Top Heavy exemptTop Heavy exempt No ADP/ACP testsNo ADP/ACP tests
DisadvantagesDisadvantages Fixed matching Fixed matching
costscosts Employer costs Employer costs
dependent on dependent on actions of NHCEsactions of NHCEs
Match at 200+% of Match at 200+% of deferrals on first 6% deferrals on first 6% of compensationof compensation
No allocation No allocation conditionsconditions
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Stacked Match FormulasStacked Match Formulas
Attractive for:Attractive for: Smaller employersSmaller employers Less sophisticated Less sophisticated
work force (lower work force (lower costs)costs)
Highly skilled work Highly skilled work force (greater force (greater employee flexibility)employee flexibility)
Need for owner Need for owner flexibilityflexibility
Less Attractive for:Less Attractive for: Larger employersLarger employers Sophisticated Sophisticated
employeesemployees Employer wants to Employer wants to
provide a minimum provide a minimum benefit for all benefit for all employeesemployees
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
SummarySummaryPlan DesignPlan Design NHCE Employee CostNHCE Employee Cost
Integrated Profit Integrated Profit SharingSharing $14,749$14,749
Age Weighted Profit Age Weighted Profit Sharing Sharing $15,642*$15,642*
Cross-Tested Profit Cross-Tested Profit SharingSharing $11,825$11,825
Stacked Match 401(k)Stacked Match 401(k) $14,233/$17,606/$22,453$14,233/$17,606/$22,453
* Problem of disparate allocations for the two HCEs* Problem of disparate allocations for the two HCEs
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Design SummaryDesign Summary Don’t ignore Social Security Integration as a Don’t ignore Social Security Integration as a
plan design.plan design. May still be a viable design alternativeMay still be a viable design alternative
Cross-Tested and Stacked Match designs Cross-Tested and Stacked Match designs very dependent on:very dependent on: Employee demographicsEmployee demographics Levels of employee elective deferralsLevels of employee elective deferrals
Look at all optionsLook at all options Need for good plan design studiesNeed for good plan design studies
Understand plan design basicsUnderstand plan design basics Partner with a good Partner with a good locallocal TPA TPA
Team WorkTeam Work
FOR FINANCIAL PROFESSIONAL USE ONLY FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR DISTRIBUTION TO THE PUBLIC- NOT FOR DISTRIBUTION TO THE PUBLIC
Questions?Questions?
Richard A. Perry, ChFC, QPA, QPFC, AIFARichard A. Perry, ChFC, QPA, QPFC, AIFA®®
Retirement Resource Group, LLCRetirement Resource Group, LLC250 Hampton Street250 Hampton StreetAuburn, MA 01501Auburn, MA 01501
Tel: (508) 832-2299 Fax: (508) 832-9885Tel: (508) 832-2299 Fax: (508) [email protected]@retirementgroup.net